Sunday, November 6, 2016

Signals and incentives

Crony capitalism, when it doesn't involve direct or indirect bribing, is manifested through regulatory capture and rent-seeking.

New services like Uber and Air BNB are challenging existing entrenched interests who are desperate to maintain the lucrative status quo. In states with a high propensity to regulate such as New York, Illinois, and California, there is a lot of money at stake and a lot of votes to be purchased one way or another.

The fact that these distributed type services tend to be almost consistently beneficial to the populace at large just makes the vested interests more intense in their efforts to regulate away the competition. Economists point out that such regulations make services more expensive and are a disservice to consumers but those arguments fall on deaf regulatory ears, clogged as they are by insider counsel, advice and lucre.

Economists point out that restricting supply increases costs. Regulators, who have expense reelection campaign to run, are deaf to the counsel.

A hotel executive said a recently-passed New York law cracking down on Airbnb hosts will enable the company to raise prices for New York City hotel rooms, according to the transcript of the executive's words on a call with shareholders last week.

The law, signed by New York's Governor Andrew Cuomo on Friday, slaps anyone who lists their apartment on a short-term rental site with a fine up to $7,500. It "should be a big boost in the arm for the business," Mike Barnello, chief executive of the hotel chain LaSalle Hotel Properties, said of the law last Thursday, "certainly in terms of the pricing.”

Barnello's comment adds fuel the argument, made repeatedly by Airbnb and its proponents, that a law that was passed in the name of affordable housing also allows established hotels to raises prices for consumers. It was included in a memo written by Airbnb's head of global policy, Chris Lehane, to the Internet Association, a tech trade group, reviewed by the Washington Post. LaSalle, a Bethesda, MD-based chain, owns hotels around the country, including New York City.

LaSalle did not respond to repeated requests for comment.

"They say a gaffe is unintentionally saying what you really believe - and the latest gaffe from the hotel cartel makes it clear that the New York bill was all about protecting the hotel industry's bottom line,” said Airbnb’s public affairs director, Nick Papas. "Albany back-room dealing rewarded the price-gouging hotel industry and middle class families will pay the price."